When a business is facing unsustainable levels of debt, the business owner may decide that bankruptcy is the only viable option. The company just isn’t making enough money to pay off its debt. With interest, that debt is getting progressively worse.
That business owner should know that they don’t necessarily have to close their company. They can, as often happens when a business uses Chapter 7 bankruptcy. The reason for this is that Chapter 7 requires the liquidation of non-exempt assets. The business may have to sell real estate, equipment and machinery, inventory and things of this nature. Closing the business may be the only viable choice after these assets have been lost.
There is another option
A second option, though, is to use Chapter 11 bankruptcy. This is a reorganization plan.
To use Chapter 11, a plan for reorganization is set up and creditors are given a chance to vote. If they approve this reorganization, then a repayment plan is created. The business can keep operating and has to pay the debt off over time. The reorganization may give it far more time to do so than the original debt.
The benefit here is that a business that is making money can spread that out and restructure things so that the debt is affordable. This gives them a path to success without closing the business down entirely. It may just be that the earnings are not high enough to immediately address all of the financial issues, but they will be in time. The business can then keep growing and become financially successful.
Understanding what type of bankruptcy to use is just one step. Business owners must understand all their legal options at this time.